The negotiations on the proposed spending cuts and tax hikes in the US continued to weigh on investor sentiments. The deadlock among lawmakers continued after the White House dismissed a Republican proposal, claiming that it did not offer anything new.

Data from the US Institute of Supply Management (ISM) showed that manufacturing activity in the world's largest economy contracted in the month of November. The index dropped to 49.5 in November, down from economist expectations. The Wall Street had ended the previous session lower following the release.

The weak US data weighed the Dollar down against the Yen, pushing exporter stocks lower.

The European markets had turned cautious on the US economy yesterday after Greece announced a massive offer to reduce almost half of its debt to its lenders. Athens plans to spend up to €10 bn in a bond buyback scheme as part of its efforts to reform the country's embattled economy. Sentiments were boosted further after eurozone finance ministers approved €39.5bn in monetary aid to Spanish banks.

Meanwhile, the Reserve Bank of Australia (RBA) slashed its interest rates to the lowest point since the global financial crisis as a slump in the mining sector threatened to affect the economy. The country has been affected by uncertainties in US and Europe, and the slowdown in its biggest export market, China.

Major Movers in Asia

Currency-sensitive stocks dropped in Tokyo after the Dollar weakened against the Yen. Shares of Nissan fell 3.72 while those of Nikon and Hitachi were down 3.08 and 1.89 percent.

Shares of Sharp were up 1.16 percent following reports of the firm's plans to join Qualcomm to manufacture an energy-efficient smartphone LCD panel.